Munich Re estimates one in seven claims are paid in respect of someone deliberately failing to disclose relevant medical or lifestyle facts on application, mostly so significant that the application should have been rejected.
Munich Re said this is due to deliberate non-disclosure on conditions such as long-term alcohol abuse, long-term depression and even cancer.
The reinsurer added that one consequence of Treating Customers Fairly has been that deliberate non-disclosure is now harder to prove at the claims stage and, as a result, fewer claims have been rejected in recent years.
There are also more restrictions on which claims can be investigated to check for non-disclosure.
Andrew Rear, chief executive of Munich Re Africa, Asia, Australia & UK Life, says "This is an alarming statistic - of the seven cases which your claims manager assessed this morning, which one was based on a seriously dishonest application?
"As an industry, how do insurers and reinsurers work together to change this situation? We have to find a way to stop honest policyholders having to pay for the dishonest ones."
The one in seven statistic is a by-product of Munich Re´s analysis into the costs and benefits of third party medical evidence as a part of the underwriting process for life and critical illness products.
Few of these cases would go on to be rejected at claims stage because the evidence to do so would not be available.
The number of cases of the most serious non-disclosure is around one in 25. These cases which would have been rejected had the information been disclosed, have a much higher claims rate and Munich Re believes that they also have a lower likelihood of the policy lapsing.
As a result, Munich Re estimates that one in seven claims involve serious non-disclosure of relevant information.
Phil Brown, chief underwriting officer at Munich Re UK & Ireland Life, says "As underwriters, we often talk in terms of deliberate non-disclosure being a 2% or 3% problem but we miss the fact that this translates into a real claims cost which is many multiples of this number.
"This understates the scale of the problem and its impact on the honest majority of customers through their higher premium rates."
